• Chicago’s New Ordinance to Protect Tenants in Foreclosed Properties
  • July 3, 2013 | Author: Carolyn Artus
  • Law Firm: Weltman, Weinberg & Reis Co., L.P.A. - Chicago Office
  • You may have heard about Chicago’s “Keep Chicago Renting” ordinance originally proposed last summer. The ordinance was subsequently modified and the City has now enacted “Protecting Tenants in Foreclosed Rental Property Ordinance”. The ordinance becomes effective September 3, 2013.

    Who is Subject to the Ordinance?

    The ordinance applies to any type of judicially foreclosed property, including a condominium unit, a multi-unit building or a single-family home, that was being used as rental property, under a written or oral rental agreement. The ordinance does not, however, apply to units in a cooperative building.

    A lender becomes subject to the ordinance: (1) when it accepts a deed in lieu of foreclosure on a rental property; (2) when it enters into a consent judgment on a rental property; or (3) after the court confirms the sale of a foreclosed rental property if the lender was the successful bidder and any special right of redemption has expired.

    A person who is a tenant in a foreclosed rental property on the day the lender becomes the owner and has a bona fide rental agreement to occupy the property as a principal residence is entitled to protection of the ordinance. The ordinance uses the same definition of bona fide rental agreement as set forth in the federal Protecting Tenants at Foreclosure Act. Hence, a lease is “bona fide” only if: (1) the tenant is not the mortgagor or the child, spouse, or parent of the mortgagor; (2) the lease was the result of an arms length transaction; and (3) the lease requires a rental payment that is not substantially less than fair market rent for the property, or the unit’s rent is reduced due to a government subsidy.

    Tenant Relocation Assistance

    The ordinance requires an owner either to pay a tenant a relocation assistance fee of $10,600 per unit to vacate the premises, or to offer the tenant an option to renew or extend the rental agreement with an annual rent increase of no more than 2%. The option to renew or extend the lease continues until the owner sells the property to a bona fide purchaser. The owner need not pay the tenant the relocation assistance fee, if the tenant declines the offer to renew or extend the lease or is evicted for cause.

    Notice Requirements

    The ordinance imposes strict notice requirements. Within 21 days after acquiring title to the property, the owner must make a good faith effort to determine the identities and addresses of all the tenants and must provide a prescribed written notice to the tenants of their rights under the ordinance, in English, Spanish, Polish, and Chinese. The owner must serve the notice by either delivering a copy to the known tenant; leaving a copy with a resident who is at least 13 years old; or sending a copy by first class or certified mail, return receipt requested, addressed to each known tenant.

    The owner must also post the same notice on the primary entrance of the property. If the owner does not learn the identity of the tenant within 21 days after acquiring title, the owner must provide the notice within 7 days of learning the tenant’s identity. The owner may not collect rent until the prescribed notices have been served.

    Registration of Foreclosed Rental Property

    The owner must register the property with the City within 10 days of acquiring title. The fee is $250. The registration must include, among other things, a designated agent for the purpose of receiving notices of building code violations concerning the property and service of process for court proceedings related to building code violations. If there is any change in the information or status of the property, the owner must notify the city within 10 days. If the property becomes vacant, the owner must file a vacant property registration.

    Repercussions for Violating the Ordinance

    The ordinance creates a private cause of action for a tenant to seek compliance with the notice requirements and the Tenant Relocation Assistance provisions of the ordinance. If successful, the tenant may be awarded two times the relocation assistance fee and reasonable attorney’s fees. In addition, if an owner is found guilty of violating the ordinance, the city may fine the owner $500 to $1000 a day per violation.

    The goal of the ordinance is to mitigate damages to tenants and communities as a result of foreclosures, by reducing vacancies and the decline of property values in Chicago neighborhoods. The city and various community groups plan to make Chicago renters aware of their rights under the ordinance.

    For the complete text of the Ordinance, go here: http://chicago.legistar.com/LegislationDetail.aspx?ID=1156573&GUID=4F709387-96EE-4BD0-9950-C692DE714378&Options=Advanced&Search=